10 Important Tax Changes You Should Know About in 2024

Although the new year has yet to arrive, the IRS has been busy making decisions about 2024 taxes. Each year, we're met with tax changes, and 2024 is no different. Here's what we know so far about the most recent changes.

1. Tax brackets are changing

The IRS has announced that there will be a 5.4% bump in income thresholds to reach each new tax bracket. To determine tax brackets, the IRS uses a formula based on the Consumer Price Index. The CPI tracks typical goods and services purchased by consumers and provides a clear picture of what's going on with inflation. When inflation is high, tax brackets receive a larger boost. When inflation cools, the boost is more moderate.

Marginal tax brackets for 2024 are as follows:

Single filers

Joint filers

2. Standard deductions will increase

Most Americans (86%, in fact) take the standard deduction instead of itemizing their deductions at tax time. The amount we'll be able to deduct in 2024 is increasing. Here are the increases we can expect:

3. The Alternative Minimum Tax (AMT) exemption will be higher

Under tax law, "average" taxpayers receive tax breaks that can significantly reduce the amount of income tax they must pay. To help ensure that all taxpayers pay their fair share, high-income earners are subject to the alternative minimum tax. Due to AMT, wealthy taxpayers must drop certain deductions available to average taxpayers and add back some sources of income. Once the math is done and the taxpayer is left with a total, they get to deduct the AMT exemption.

In 2023, the AMT exemption amount was $81,300 and began to phase out at $578,150. For 2024, the AMT exemption amount is $85,700 and begins to phase out at $609,350. For married couples filing jointly, the AMT exemption amount will be $133,300, beginning to phase out at $1,218,700.

4. The Earned Income Tax Credit (EITC) has been boosted

Qualifying taxpayers with three or more qualifying children will see the EITC increase from $7,430 to $7,830. The EITC is a federal tax credit for low- to moderate-income taxpayers, particularly those with children. Boosting that credit gives parents a little more money each year to cover household obligations.

5. Monthly limitation for the qualified transportation fringe benefit increasing by $15

The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases from $300 to $315 for 2024. IRS code allows employers to offer these nontaxable fringe benefits to employees, or employees can pay for the benefits tax free on their own by working out a salary reduction agreement with their employer. In either case, it gives employees a lower-cost way to get to work.

6. Change in allowable FSA contributions

For tax year 2024, employees can contribute up to $3,200 to health flexible spending arrangements. The maximum carryover for cafeteria plans that permit carryover is increasing by $30 to $640. That's more money to tuck away in your savings account for an emergency health situation.

7. Foreign earned income exclusion increase

There will also be an increase in the foreign-earned income exclusion. The new exclusion is $126,500, up $6,500 from 2023. In short, U.S. citizens working outside the U.S. can reduce their tax bill by excluding an additional $6,500 from income earned in other countries.

8. Beneficiaries can exclude more

Beneficiaries will be able to exclude $13,610,000 of the decedent's estate, up from $12,920,000 in 2023. While receiving part of a multi-million dollar estate is not the norm for most of us, this tax change helps the wealthy preserve more of their money for the family, friends, and charitable organizations it's left to upon their death.

9. Annual exclusion for gifts is getting a bump

In 2024, the new annual exclusion for gifts is increasing to $18,000, an increase of $1,000 from 2023. The annual exclusion for gifts refers to the amount of money one person can "gift" another without being hit with a gift tax. Typically, the gift giver is responsible for paying the tax bill, which makes this change welcome news to those who would like to share a bit more of their money.

10. Adoption credits are on the rise

The maximum allowable adoption credit for 2024 is ratcheting up to $16,800. The adoption credit is designed to help offset the high costs associated with adopting a child. In addition to court costs and attorney fees, the credit can be applied to travel expenses and any other expense directly related to a legal adoption.

Tax changes may not be the most exciting thing you read about today, but they can come in handy. If nothing else, they serve as a reminder of the many ways to put more money in your checking account at tax time.